Blockchain: the end of bureaucracy or a new tool for the incumbents?

What do you get when you take the currency out of bitcoin? A revolution or business as usual? David Hall reports from Ethereum.nz.

What do you get when you take the currency out of bitcoin? Potentially one of the most powerful, influential tools in the history of the internet.

That’s what blockchain’s acolytes will tell you anyway. I saw several of them speak at the ASB Cube in the Wynyard Quarter as part of Techweek AKL. Three speakers were connected to the pioneering blockchain platform, Ethereum. And while I have to take their word on the blockchain’s significance for the internet, it’s not hard to see its significance for the real world. If you’ve ever engaged with discussions over “the future of work” and wondered why clerical and administrative jobs feature so highly among the 46% of New Zealand jobs at risk of automation, then blockchain is surely part of the answer.

So what is blockchain?

The concept was invented in 2008 as the basis for renegade online currency, bitcoin. In this context, the blockchain is a digital ledger that records every bitcoin transaction that has ever occurred. It is protected by cryptography so powerful that breaking it is typically dismissed as “impossible”. More importantly, though, the blockchain resides not in a single server, but across a distributed network of computers. Accordingly, whenever new transactions occur, the blockchain is authenticated across this distributed network, then the transaction is included as a new “block” on the chain.

This process of distributed authentication means that the blockchain is not only unalterable but immutable. It exists in multiple places at once, so it isn’t possible for a bug or a forgery to take hold. In this sense, the oft-used simile of human DNA is misplaced. A single strand of DNA can’t check its integrity against other DNA strands, which is why mutations can be replicated. The blockchain, by contrast, cannot catch cancer. Indeed, it is so reliable that blockchain ecosystems are described as “trustless”, because they remove the need for trust between participants, even perfect strangers.

The implications are revolutionary. As John Lanchaster wrote recently in the LRB: “A decentralised, anonymous, self-verifying and completely reliable register of this sort is the biggest potential change to the money system since the Medici [the first successful bank in fifteenth century Florence]. It’s banking without banks, and money without money.”

It’s also currency without the state, freed from those authorities who have stamped their faces and insignias on coins and banknotes for centuries. No longer must we put our trust in these third parties, nor submit to their oligopolies of tax, bank fees, and more. Instead there is a chance (not quite yet realised) that we transition to a peer-to-peer economy that operates in the cloud.

The jury is still out on whether bitcoin will survive as a currency, but the blockchain is developing a life of its own. Although many innovators tried to outdo bitcoin at its own game by creating alternative currencies, Ethereum took the underlying innovation and cracked it open for repurposing.

The main purpose is “smart contracts”. Here, the blockchain serves not only as a record of every transaction, but as a record of every activity, including new clauses, conditions, exemptions, infringements, or liabilities. This is a whole new way of accounting for our economy. As Ethereum’s website puts it, the blockchain is “an enormously powerful shared global infrastructure that can move value around and represent the ownership of property… to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.”

The blockchain enables the spontaneous creation of externally aware contracts between strangers, which not only benefit from the security of triple-entry accounting, but remain lossless and unalterable in a way that paper contracts are not.

So, now we start to see why clerks, administrators, accountants, solicitors, auditors, and other service sector workers might be loosening their collars. The blockchain enables the spontaneous creation of externally aware contracts between strangers, which not only benefit from the security of triple-entry accounting, but remain lossless and unalterable in a way that paper contracts are not. This bypasses the need for screeds of red tape, as well as the bureaucrats that produce it. As 3month’s Mark Pascall tells the audience energetically: “This is huge: I believe this is real, real disruption.”

Interestingly, some of the more vulnerable companies are the arch-disruptors themselves: Uber, AirBnB, even the mighty Amazon. Why go through intermediaries like these when we can create our own peer-to-peer contracts? Indeed, one Ethereum-based application, Slock.it, has already created blockchain-operated smart locks that enable people to easily rent, share, or sell anything that can be secured by a lock. This is the access economy without the gatekeepers.

Not all of these will survive the hard spring of internet entrepreneurialism, partly because blockchains won’t always be the appropriate solution to a problem. As programmer Peter Borah emphasises, Ethereum is still glisteningly new, launched less than a year ago. It is not so much a hammer that sees everything as a nail; rather, “We’ve just invented the hammer, so we’re not sure what a nail looks like.” Borah is working on smart contracts for games.

Another fascinating application is supply chains. Already Everledger is developing blockchains to certify diamonds, to create an unalterable transaction history that reveals each crystal’s provenance. The same principle could apply to other products, to organic produce for example, to provide transparency for conscientious consumers.

It’s these positive impacts that the keynote speaker, Ethereum’s Taylor Gerring, emphasises. He says, “At the end of the day, my passion is to provide low cost coordination technology to impoverished communities.” Wherever governments are corrupt or broken, people could use blockchains to build distributed autonomous organisations (DAOs) to coordinate themselves. On his account, the blockchain is a “global trust machine with guaranteed execution that is secure by default and censorship-resistant”.

There’s more than a whiff of a “Peace Corps” mentality here, of that indelible American urge to make the world a better place (whether or not it wants to be bettered). After all, it bears mentioning that DAOs not only enable workarounds for failed states, but for successful states too, a distinctive platform for collective action. Yet there’s also no reason why states wouldn’t also adopt blockchains, for example, to empower their identity systems, to create immutable passports and criminal records. Such uses, although blindingly obvious, go unmentioned.

But this aloofness to impacts is hardly unusual. This is an industry brimming with young Frankensteins, never entirely sure of what they’re letting loose upon the world. The creative impulse drives them, the thrill of disruption and a sense of technological destiny, as well as a few utopian convictions about how the pieces will fall.

Gerring tells us that the blockchain could enable “a re-engineering of the web”, a resurgence of its emancipatory potential. He notes that “today’s cloud consists of service layers owned and operated by large corporations”, but that Ethereum will “resist control by malicious entities… they might be corporations, might be governments, might be malicious individuals.”

At this point, it’s impossible not to reflect on the event itself. A cursory glance at the nametags pinned to the largely middle-aged chests confirms that this is no tech crowd, but a room largely occupied by representatives of New Zealand’s major banks, major corporates, and central government departments. These are precisely the bureaucracies that we are told are about to be made defunct, the intermediaries about to be bypassed, perhaps even a few of the “malicious entities” about to be phased out alongside the fax machine.

There’s little question that the blockchain will disrupt existing processes, but any reports that this is “the end of bureaucracy” are almost certainly greatly exaggerated.

So what are they here for? To listen passively about their future demise? Or to learn, to adapt, to commandeer, steer and control the impact of this technology? There’s little question that the blockchain will disrupt existing processes, but any reports that this is “the end of bureaucracy” are almost certainly greatly exaggerated.

To characterise the relationship between the speakers and their audience, it would be too obvious to lapse into schoolyard categories of jocks and nerds. Certainly, Ethereum’s founder, 22 year-old Vitalik Buterin, is the archetype of the IT genius, abnormally intelligent and runty, with a natural speaking voice that’s strikingly similar to Steven Hawking’s speech synthesizer. Buterin’s acolytes in Auckland are cut from more or less the same cloth—yet the MC knows what he is doing when he makes repeated references to the All Blacks, playing to his audience rather than his guests. Here was a crowd of managerial physiques, a generation or two older than the speakers, unfailingly formally dressed. But all this is utterly unsurprising, no less predictable than the one-sided ratio of men over women, just the facts of our vocational anthropology.

A more interesting question is who are the wolves and who are the lambs? Are these young techies onstage staring down their seniors, courageously laying out the details of their takeover? Programmer Peter Borah described blockchain as “a distributed database which is so robust that it can be made public”—and perhaps Ethereum is an anti-corporatist plan so robust that it too can be made public, thrust in the faces of the soon-to-be vanquished.

Or perhaps the blockchain will be easily absorbed, once again diverting the dream of the internet into a tool that serves incumbents. After all, why assume that a stripped-back bureaucracy isn’t precisely what certain “malicious entities” would like? Perhaps the lambs are all outside the ASB Cube and inside it’s only wolves, jostling for their place in the pack.

But the more banal, more likely, answer is this: there is no plan, only hopes, speculations, and contingency plans. Jobs will vanish in certain sectors, but elsewhere new jobs will emerge (albeit likely fewer than were lost) for advisors and programmers of smart contracts. The state will remain to enforce whatever needs enforcing, because any new system inevitably means new forms of crime. Finally, like with any transformative technology, the blockchain will be used unscrupulously by the unscrupulous and humanely by the humane, but there is no full telling what these uses will be in advance. All we can do is encourage its best impacts and manage its worst.